Abstract
AbstractAgainst the background of several European countries implementing capacity remuneration mechanisms (CRM) as an extension to the energy-only market (EOM), this chapter provides a quantitative assessment of the long-term cross-border effects of CRMs in the European electricity system. For this purpose, several scenario analyses are carried out using the electricity market model PowerACE. Three different market design settings are investigated, namely, a European EOM, national CRM policies, and a coordinated CRM. The introduction of CRMs proves to be an effective measure substantially shifting investment incentives toward the countries implementing the mechanisms. However, CRMs increase generation adequacy also in the respective neighboring countries, indicating that free riding occurs. A coordinated approach therefore seems preferable in terms of both lower wholesale electricity prices and generation adequacy.
Highlights
Against the background of several European countries implementing capacity remuneration mechanisms (CRM) as an extension to the energy-only market (EOM), this chapter provides a quantitative assessment of the long-term crossborder effects of CRMs in the European electricity system
Since the liberalization of the electricity markets in the 1990s, the prevailing market design in European countries has been the energy-only market (EOM), in which capacity providers are solely compensated for the amount of electricity they sell on the markets
In the Netherlands, which rely on an EOM, investment incentives are drastically reduced under the national CRM policies as compared to the European EOM
Summary
Since the liberalization of the electricity markets in the 1990s, the prevailing market design in European countries has been the energy-only market (EOM), in which capacity providers are solely compensated for the amount of electricity they sell on the markets. Several European countries seem to face threats in terms of the future generation adequacy and have either already implemented some kind of CRM or are currently in the process of evaluating appropriate solutions (cf Fig. 11.1). These developments can be attributed to a variety of factors including strongly increasing shares of fluctuating electricity generation from renewable energy sources (RES), decreasing wholesale electricity prices as well as recent phase-out decisions for certain technologies. Different longterm simulations up to 2050 are carried out for all three REFLEX scenarios (ModRES, High-RES decentralized, High-RES centralized) to derive insights regarding the impact of national and coordinated CRM policies on amount and location of new investments, the resulting technology mixes in the electricity sector as well as generation adequacy
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